Seventh Circuit Increasingly Problematic for Directors and Officers Defending Shareholder Derivative Suits

September 12, 2013

With its recent decision in Westmoreland County Employee Retirement System v. Parkinson, et al., the United States Court of Appeals for the Seventh Circuit has confirmed that the courts of the Seventh Circuit can be a challenging place for a director or officer of a public company to be sued in a shareholder derivative lawsuit. In Westmoreland, Plaintiff Westmoreland County Employee Retirement System (“Westmoreland”), purportedly on behalf of Baxter International, Inc. (“Baxter” or the “Company”), sued the Company’s board of directors and certain officers for “consciously disregard[ing] their responsibility to bring Baxter into compliance with [a 2006] Consent Decree and related health safety laws,” which allegedly caused the Company to lose more than $550 million. The Seventh Circuit reversed the lower court’s decision dismissing the claim, holding that the totality of the complaint’s allegations supported a reasonable doubt that the defendants’ conduct was the product of a valid exercise of business judgment. This decision, in combination with the Seventh Circuit’s previous decision in In re Abbott Laboratories Derivative Shareholder Litigation, further reinforces the Seventh Circuit’s status as a particularly problematic jurisdiction for directors and officers defending shareholder derivative suits based on board action.

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